By Joe Aura, aurajoe6@gmail.com
The term petrodollar refers to US dollars paid to oil-exporting countries for petroleum. This system, established in the 1970s, has been a cornerstone of US global financial dominance, by ensuring high demand for the dollar.
How the System Works
- The Pact: In 1974, the US and Saudi Arabia struck a deal where the Saudis would price their oil exclusively in dollars and invest their surpluses into US Treasury securities.
- Military Protection: In exchange, the US provided military protection and advanced weaponry to the Gulf states.
- Petrodollar Recycling: Exporters “recycle” these dollars by investing them back into US assets or buying foreign goods, which helps fund US budget deficits and keeps interest rates low.
Impact on Global Finance
The Petrodollar system acts as a “price amplifier” for the world. Because countries with little or no oil reserves must first buy Dollars to then buy oil. Any change in the value of the Dollar or the price of oil hits your pocket twice.
In Kenya, fuel prices are heavily influenced by the USD/KES exchange rate. Since oil is traded in Petrodollars, Kenya’s fuel import bill (which accounts for nearly 15% of all imports) must be settled in USD. When the Shilling weakens against the Dollar, the cost of importing fuel rises even if global oil prices stay the same. As of April 29, 2026, the exchange rate is approximately KSh 129.10 per USD. This relatively high rate, combined with a 41.5% to 68.7% spike in global landed costs due to Middle East tensions, forced fuel prices to record highs this month.
Transport fares in Kenya respond almost instantly to fuel price changes because fuel typically represents about 55% of a vehicle’s total operating costs. Following the mid-April price hike—where Diesel jumped by KSh 40.30 per liter—the Matatu Owners Association and other transporters announced immediate fare increases.
The recent increase in these costs is primarily driven by a historic spike in fuel prices and new regulatory levies, which have created a “ripple effect” across the entire Kenyan economy. When the cost of moving people and goods rises, it immediately pushes up the price of everything else, from bus fares to the food on your plate.
Online cab services (like Uber/Bolt) have had to strategise on how to implement a 1.5x fare multiplier to cope with these record-high costs. Ironically, even electric bus operators in Nairobi have raised fares recently, citing the broader inflationary pressure caused by the high cost of the Dollar-denominated energy market.
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